Double Taxation Agreement between Germany and Denmark
Who do double taxation agreements help?
Every state likes to claim taxes for itself. Double taxation agreements (abbreviated: DTA) are concluded between two states and regulate which state may tax which income – and above all: which state may not. DTAs take precedence over the tax laws of the individual countries. If companies or private individuals operate in more than one state, there is a risk that several countries will raise claims for taxes. Genuine double taxation by two states would generally result in those affected having to quickly cease their cross-border activities – a result that would cause economic damage.
As we predominantly advise companies and private individuals with activities in several states, the application of DTAs is part of our daily work. Contact us by email or call us so that we can help you maintain an overview of the tax aspects within the framework of the Double Taxation Agreement between Germany and Denmark.
Detailed information on the topic of living and working in the border region and on the Double Taxation Agreement with Denmark can be found here →.
The Double Taxation Agreement between Germany and Denmark
The current DTA between Germany and Denmark (abbreviated: DTA Denmark) came into force in 1996 and regulates the taxation of income, gifts and inheritances between the two states. For example, Article 7 regulates the taxation of business profits and Article 15 regulates the taxation of employees.
Because the DTA Denmark is particularly important for most of our clients, we provide it in full text in Danish and German on our own pages.
The effects of the DTA on each taxpayer depend very much on the circumstances of the individual case. Determining the right of taxation according to Danish law, German law and the provisions of the DTA is not always easy. Therefore, we describe only two examples here:
Example 1: Business Profits
An A/S with its registered office in Kolding supplies German customers by mail order. Even though the customers are located in Germany, under Article 7 of the DTA Denmark, Denmark – and only Denmark – has the right of taxation for income taxes (whether German value added tax applies is not regulated in the DTA itself and must be assessed differently).
Because the business is doing so well, it is decided in the second year to employ a salesperson with residence in Germany. This salesperson is only intended to establish contacts with German customers; he has no authority whatsoever to actually conclude contracts – this happens exclusively at the company headquarters in Denmark. Here too, the profits of the A/S are subject exclusively to Danish taxation.
After two years, the salesperson has proven himself and the sales figures in Germany have continued to increase. He receives the authority to conclude contracts with the German customers. A dependent agent permanent establishment arises under Article 5 of the DTA Denmark in Germany – the A/S becomes subject to tax in Germany.
Example 2: Income from Employment
Mr. Müller lives in Germany and works for a Danish A/S with its registered office in Copenhagen. He performs his work on 210 days per year in Denmark and on 10 days per year in Germany. Under Article 15 of the DTA Denmark, his salary for 210 days is subject to taxation in Denmark. The salary for the 10 working days spent in Germany is subject to German taxation.
After several successful years, Mr. Müller moves to Denmark with his family on the first of January. A German residence no longer exists. Denmark receives the right of taxation for all 220 working days, even if Mr. Müller continues to perform his work on 10 days in Germany.
How you can avoid double taxation
DTAs generally know two methods for avoiding double taxation:
- Credit method
- Exemption method
The state of residence (that is, the state in which the company or the natural person is resident) chooses which of the methods it applies to which cases.
Roughly simplified, the following applies:
- Under the Credit method, the income earned abroad is first subjected to domestic taxation, and afterwards the foreign tax is deducted from the domestic tax burden.
- Under the Exemption method, the income taxed abroad is excluded from the tax base (however, the income tax rate on the domestic income is determined taking it into account – this is referred to as the progression proviso).
Denmark as the state of residence preferably uses the credit method, Germany as the state of residence mostly uses the exemption method (see Art. 24 DTA Denmark).
Taxation of employment income under the Double Taxation Agreement
A letter from the German Federal Ministry of Finance dated 12.11.2014 helps internationally active employees with answering tax-related questions. It is relatively “young”, but compared to previous practice contains only a few truly important changes. One of these is the allocation of salaries earned in two countries: Here, the number of actual working days – and no longer the agreed working days – is decisive. Letter of the Federal Ministry of Finance dated 12.11.2014 here →
With which countries does Germany have an agreement?
The Federal Republic of Germany has concluded a Double Taxation Agreement with more than 100 states.
You can access the current agreement texts with Germany’s neighboring states under the following links:
| Belgium | Denmark | France |
| United Kingdom | Liechtenstein | Luxembourg |
| Netherlands | Austria | Poland |
| Switzerland | Czech Republic |
All treaties concluded by Germany, as well as additional country-specific publications, are available on the website of the German Federal Ministry of Finance .
